Friday, May 16, 2008

Shifts in Supply

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How Shifts in SUPPLY Affect the Market Equilibrium

The following example illustrates how a change in supply changes the equilibrium price.

Orange Juice Market Example

Most of the oranges grown in Florida are used to make orange juice. Suppose a hurricane hits Florida and destroys a large portion of the orange groves. What affect will this have on equilibrium in the orange juice market? Because orange groves have been destroyed, the supply of orange juice decreases. The SUPPLY CURVE shifts left. At every possible price, less orange juice is produced than before the orange groves were destroyed.

Since the demand curve has not shifted, the new equilibrium occurs at a higher market price and a smaller quantity of orange juice.

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